GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1993

H	1 

HOUSE BILL 77

Short Title:  Individual Income Tax Adjustments.	(Public)
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Sponsors: Representatives Gamble, Jarrell, Justus, Luebke, and Tallent.
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Referred to:  Finance.
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February 9, 1993

A BILL TO BE ENTITLED
AN ACT TO MAKE CONFORMING CHANGES TO THE LAW PROVIDING FOR INDIVIDUAL INCOME TAX ADJUSTMENTS AND TO PROVIDE THAT EXPENSES PAID IN CONNECTION WITH INTEREST EARNED ON OBLIGATIONS ARE DEDUCTIBLE FROM AN INDIVIDUAL'S TAXABLE INCOME TO THE EXTENT THE INTEREST IS TAXABLE.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 105-134.6 reads as rewritten:
"§ 105-134.6.  Adjustments to taxable income.
(a)	S Corporations. – The pro rata share of each shareholder in the income attributable to the State of an S Corporation shall be adjusted as provided in G.S. 105-130.5.  The pro rata share of each resident shareholder in the income not attributable to the State of an S Corporation shall be subject to the adjustments provided in subsections (b), (c), and (d)	of this section.
	(b)	Deductions. – The following deductions from taxable income shall be made in calculating North Carolina taxable income, to the extent each item is included in taxable income:
(1)	Interest upon the obligations of (i) the United States or its possessions, (ii) this State or a political subdivision of this State, or (iii) a nonprofit educational institution organized or chartered under the laws of this State.
(2)	Interest upon obligations and gain from the disposition of obligations to the extent the interest or gain is exempt from tax under the laws of this State.
(3)	Benefits received under Title II of the Social Security Act and amounts received from retirement annuities or pensions paid under the provisions of the Railroad Retirement Act of 1937.
(4)	Repealed by Session Laws 1989 (Reg. Sess., 1990), c. 1002, s. 2.
(5)	Refunds of state, local, and foreign income taxes included in the taxpayer's gross income.
(6)	a.	An amount, not to exceed four thousand dollars ($4,000), equal to the sum of the amount calculated in subparagraph b. plus the amount calculated in subparagraph c.
b.	The amount calculated in this subparagraph is the amount received during the taxable year from one or more state, local, or federal government retirement plans.
c.	The amount calculated in this subparagraph is the amount received during the taxable year from one or more retirement plans other than state, local, or federal government retirement plans, not to exceed a total of two thousand dollars ($2,000) in any taxable year.
d.	In the case of a married couple filing a joint return where both spouses received retirement benefits during the taxable year, the maximum dollar amounts provided in this subdivision for various types of retirement benefits apply separately to each spouse's benefits.
(7)	
		Recodified as G.S. 105-134.6(d)(2).
(8)	Recodified as G.S. 105-134.6(d)(3).
	(c)	Additions. – The following additions to taxable income shall be made in calculating North Carolina taxable income, to the extent each item is not included in taxable income:
(1)	Interest upon the obligations of states, other than this State, and their political subdivisions.
(2)	Any amount allowed as a deduction from gross income under the Code that is taxed under the Code by a separate tax other than the tax imposed in section 1 of the Code.
(3)	Any amount deducted from gross income under section 164 of the Code as state, local, or foreign income tax to the extent that the taxpayer's total itemized deductions deducted under the Code for the taxable year exceed the standard deduction allowable to the taxpayer under the Code reduced by the amount by which the taxpayer's allowable standard deduction has been increased under section 63(c)(4) of the Code.
(4)	The amount by which the taxpayer's standard deduction has been increased for inflation under section 63(c)(4) of the Code and the amount by which the taxpayer's personal exemptions have been increased for inflation under section 151(d)(4) of the Code.  For the purpose of this subdivision, if the taxpayer's personal exemptions have been reduced by the applicable percentage under section 151(d)(3) of the Code, the amount by which the personal exemptions have been increased for inflation is also reduced by the applicable percentage.
(5)	The fair market value, up to a maximum of one hundred thousand dollars ($100,000), of the donated property interest for which the taxpayer claims a credit for the taxable year under G.S. 105-151.12 and the market price of the gleaned crop for which the taxpayer claims a credit for the taxable year under G.S. 105-151.14.
(6)	Expenses paid in connection with income deducted from taxable income under subdivision (b)(1) or (2) of this section.
(d)	Other Adjustments. – The following adjustments to taxable income shall be made in calculating North Carolina taxable income:
(1)	Expenses paid in connection with income added to taxable income under subdivision (c)(1) of this section may be deducted.
(2)	The amount of inheritance tax attributable to an item of income in respect of a decedent required to be included in gross income under the Code, adjusted as provided in G.S. 105-134.5, 105-134.6, and 105-134.7, may be deducted in the year the item of income is included.  The amount of inheritance tax attributable to an item of income in respect of a decedent is (i) the amount by which the inheritance tax paid under Article 1 of this Chapter on property transferred to a beneficiary by a decedent exceeds the amount of inheritance tax that would have been payable by the beneficiary if the item of income in respect of a decedent had not been included in the property transferred to the beneficiary by the decedent, (ii) multiplied by a fraction, the numerator of which is the amount required to be included in gross income for the taxable year under the Code, adjusted as provided in G.S. 105-134.5, 105-134.6, and 105-134.7, and the denominator of which is the total amount of income in respect of a decedent transferred to the beneficiary by the decedent.  For an estate or trust, the deduction allowed by this subdivision shall be computed by excluding from the gross income of the estate or trust the portion, if any, of the items of income in respect of a decedent that are properly paid, credited, or to be distributed to the beneficiaries during the taxable year.
	     The Secretary of Revenue may provide to a beneficiary of an item of income in respect of a decedent any information contained on an inheritance tax return that the beneficiary needs to compute the deduction allowed by this subdivision.
(3)	The taxpayer may deduct the amount by which the taxpayer's deductions allowed under the Code were reduced, and the amount of the taxpayer's deductions that were not allowed, because the taxpayer elected a federal tax credit in lieu of a deduction.  This deduction is allowed only to the extent that a similar credit is not allowed by this Division for the amount."
Sec. 2.  G.S. 105-131.2(a) reads as rewritten:
"(a)	Adjustment.  The pro rata share of each shareholder in the income attributable to the State of an S Corporation shall be adjusted as provided in G.S. 105-130.5.  The pro rata share of each resident shareholder in the income not attributable to the State of an S Corporation shall be adjusted as provided in G.S. 105-134.6(b), (c), and (d)."
Sec. 3.  This act is effective for taxable years beginning on or after January 1, 1993.